If you employ any members of staff, employers’ liability insurance will protect you against the cost of any claims made against you (as an employer) for an injury to an employee, or even following a death. The cover will fund the cost of professional representation, and if the employer is found to have been at fault, any damages which are subsequently rewarded to the claimant.
But, do you need to take out cover if you’re an IT contractor, working via your own limited company?
What does the law say?
Most employers are obliged to take out EL cover, as detailed in the Employers’ Liability (Compulsory Insurance) Act 1969 (read this PDF for further details).
It is always legal requirement to take out cover if you have employees.
However, there are some notable exceptions to this rule – the first being of particular relevance to our site visitors.
- If you run your own limited company for contracting, and you (as a director) are the sole employee, and own 50% or more of the shares, your company is exempt.
- If you run a family business, and all your employees are close relatives, you are also exempt, but this exemption only applies to family businesses which have not been incorporated.
How much employers’ liability cover should you have?
The law states that you must be covered for £5m as a minimum, but most insurers provide a ceiling of £10m as standard. This amount will be used to cover both the costs of defending a claim, and any compensation awarded.
Why should contractors take out EL cover if it’s not a legal requirement?
So, if most IT contractors work alone, and have no staff – and don’t have to be covered, are there any reasons why they might decide to take out EL cover regardless?
- In many cases, clients stipulate that contractors must have public and employers’ liability insurance, even if there is not legal requirement to do so.
- Public and Employers’ liability insurance is usually sold as one unit, so if you require the former, you will also receive cover for the latter.
- Many contractor insurance packages are competitively priced, so if you need to take out Professional Indemnity cover, the incremental cost of including business liability (with the peace of mind it provides) is likely to be small.
You should note that if you decide to employ your spouse, perhaps to undertake some administrative work for the company, then you will need to take out EL insurance – however unlikely it may be that your spouse would subsequently decide to make a claim against the company. The family business exemption doesn’t apply to limited companies.
What happens if you fail to take out cover?
If you are not exempt from having to take out EL insurance, the penalties for failing to do so are severe.
The Health & Safety Executive (HSE) may decide to check whether or not your business is adequately covered, and to view your certificate of insurance.
You can be fined by £2,500 for each day your business remains without cover. You can also be fined £1000 for failing to produce your certificate when asked by an HSE employee.
Of course, the vast majority of contractors are not legally obliged to take out EL cover, but this information is included for the sake of completeness.
How can I take out cover?
Several companies provide specialist insurance products for small limited companies (contractors, freelancers and consultants).